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LESSONS:

Kazakhstan: Term Loan Facility JSC Alliance Bank

sector: Finance | country: Kazakhstan

The extended annual review report (XARR) identified the following issues and lessons: (i) The risk management system of the JSC Alliance Bank (ALB) could have been scrutinized more closely, (ii) Asset quality of ALB could have been monitored more closely, and (iii) ADB had too much confidence in Kazakhstan’s regulatory capacity to supervise and monitor the banking sector. The XARR also concurred with most of the findings contained in the Office of Risk Management (ORM) memorandum covering lessons learned from the ADB experience with ALB and Bank TuranAlem. The memo identified 25 lessons that included (i) avoiding loan concentrations (sector and single obligor), (ii) sampling loans of the borrower during due diligence (to check for related party transactions), (iii) examining rapid loan growth (particularly if outside of the bank’s core competencies), and (iv) avoiding inexperienced management teams.

This validation agrees with the issues and lessons identified in the XARR and the ORM memo but adds that the term ‘SME’or small and medium-sized enterprise should be defined in the report and recommendation of the President and facility agreement of future loans to ensure that proceeds are indeed for onlending to SMEs. It is unclear whether reported SME lending data are in line with the government’s definition of SMEs (i.e., enterprises having no more than 250 employees and average annual assets of no more than $3 million).

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